DEF 14A of PayPal Holdings, Inc.
Filed Apr 10, 2019 · FY20180001193125-19-102854
OUR 2018 NEO PAY
OUR 2018 NEO PAY We believe that our executive compensation program was effective at incentivizing results in 2018 by appropriately aligning pay and performance. The following charts show the 2018 Target Total Direct Compensation mix for our Chief Executive Officer, Mr. Schulman (our “CEO”), and the average 2018 Target Total Direct Compensation mix for our other named executive officers (consisting of our principal financial officer and the three most highly compensated executive officers other than our CEO and CFO) (“NEOs”). Target Total Direct Compensation is the sum of (i) 2018 base salary, (ii) target 2018 annual incentive award (based on the grant date fair value for the portion of the award delivered as performance-based restricted stock units), and (iii) target annual long-term incentive award (based on the grant date fair value). For our CEO, Total Target Direct Compensation also included a CEO performance share unit award (as seen in the chart below) granted in 2018 to further incentivize significant stockholder value creation over a five-year period. To learn more about our executive compensation program, see the Compensation Discussion and Analysis beginning on page 38.
OUR PAY PRACTICES
| What We Do | | | | Pay for Performance | | A substantial percentage of our NEOs’ Target Total Direct Compensation is performance-based and tied to pre-established performance goals aligned with our short-term and long-term objectives. | | Adherence to Rigorous Goals | | We use objective performance-based company goals in our annual and long-term incentive plans that we believe are rigorous and designed to incentivize and motivate NEO performance. | | Independent Compensation Consultant | | The Compensation Committee engages its own independent compensation consultant to advise on executive and non-employee director compensation matters. | | Annual Compensation Peer Group Review | | The Compensation Committee, with the assistance of its compensation consultant, reviews the composition of our compensation peer group annually and makes adjustments to the composition of that peer group, if deemed appropriate based on our executive compensation philosophy and principles. | | Annual Say-on-Pay Vote | | We conduct an annual advisory (non-binding) vote on the compensation of our NEOs (a “say-on-pay” vote). At our 2018 Annual Meeting, more than 88% of the votes cast on the say-on-pay proposal were voted in support of the 2017 compensation of our NEOs. | | Investor Engagement | | In addition to conducting an annual say-on-pay vote, we are committed to ongoing engagement with our investors on executive compensation and governance matters. These engagement efforts take place through teleconferences, in-person meetings, and correspondence with our investors. |
DIRECTOR NOMINEES
DIRECTOR NOMINEES The Governance Committee and the Board have evaluated each of the director nominees against the factors and principles used to select director nominees. Based on this evaluation, the Governance Committee and the Board have concluded that it is in the best interests of the Company and its stockholders for each of the proposed director nominees on pages 13-20 below to continue to serve as a director of the Company. The Board believes that each of the director nominees has a strong track record of being a responsible steward of stockholders’ interests and brings extraordinarily valuable insight, perspective, and expertise to the Board. The Governance Committee and the Board evaluate director nominees based several key qualifications and attributes. The following provides a snapshot of the diversity, skills, and experiences of our director nominees:
DIRECTOR NOMINEES
| | Highly relevant professional experience in payments, financial services, FinTech, technology, innovation, business development, strategy, legal, regulatory, government, global business, finance, accounting, consumer, marketing, brand management, cybersecurity, information security, and human capital management; | | | Relevant senior leadership/CEO experience; | | | High-level managerial experience in complex organizations; | | | Experience and expertise that complement the skill sets of the other director nominees; | | | High degree of character and integrity and ability to contribute to strong Board dynamics; | | | Highly engaged and able to commit the time and resources needed to provide active oversight of PayPal and its management, including attending at least 75% of the total number of meetings of the Board and committees of the Board on which he or she served during 2018; | | | Sound business judgment; and | | | Commitment to enhancing stockholder value. |
DIRECTOR NOMINEES
Eleven of our 12 nominees for election are independent and, as part of PayPal’s commitment to diversity and inclusion, 50% of the Board members are women or from underrepresented ethnic groups.
DIRECTOR NOMINEES
| | 2019 Proxy Statement |
DIRECTOR NOMINEES
| Proposal 1 | 11 |
DIRECTOR NOMINEES
Core Director Skills, Expertise, and Attributes Listed below are the core skills, expertise and attributes that we consider important to have represented on our Board of Directors in light of our current business strategy and structure. We do not believe that each director needs to have all of these skills. Each director’s biography notes his or her relevant skills — see pages 13-20 for more detail.
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Rodney C. Adkins Age: 60 Director since: September 2017 Board Committees: Audit, Risk and Compliance Governance Other Current Public Company Boards: Avnet, Inc. (Chairman) PPL Corporation* United Parcel Service, Inc. W.W. Grainger, Inc. Key Qualifications and Experience: • Technology and Innovation • Business Development and Strategy • Senior Leadership • Regulatory and Governmental • Global Business • Other Public Company Board Service • Finance • Consumer, Marketing, and Brand Management • Cybersecurity/Information Security • Human Capital Management | | Biography: • President of 3RAM Group LLC, a privately held company specializing in capital investments, business consulting services and property management since January 2015 • Former Senior Vice President of International Business Machines Corporation (IBM), a leading manufacturer of information technologies, from 2007 until 2014; in his over 30-year career with IBM, Mr. Adkins held a number of development and management roles, including Senior Vice President of Corporate Strategy from April 2013 to April 2014, Senior Vice President of Systems and Technology Group from October 2009 to April 2013, Senior Vice President of Development & Manufacturing from May 2007 to October 2009, and Vice President of Development of IBM Systems and Technology Group from December 2003 to May 2007 • B.A. in Physics from Rollins College and B.S. and M.S. degrees in Electrical Engineering from Georgia Tech * Mr. Adkins has notified us that he will not be standing for re-election at PPL Corporation and will step down from their board in May 2019. | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Wences Casares Age: 45 Director since: January 2016 Board Committees: Compensation Other Current Public Company Boards: None Key Qualifications and Experience: • Financial Services and Payments • Technology and Innovation • Business Development and Strategy • CEO Experience • Global Business • Consumer, Marketing, and Brand Management • Cybersecurity/Information Security • Human Capital Management | | Biography: • Founder of Xapo Inc., a bitcoin wallet and vault startup, and has served as its Chief Executive Officer since March 2014 • Founder and Chief Executive Officer of Lemon Inc., a digital wallet platform, from October 2011 to March 2014 • Co-Chief Executive Officer of Bling Nation Ltd., a mobile payments platform, from March 2007 to October 2011 • Serves on the Board of Directors of Endeavor Global | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Jonathan Christodoro Age: 42 Director since: July 2015 Board Committees: Compensation Other Current Public Company Boards: Enzon Pharmaceuticals, Inc. Herbalife Ltd. Sandridge Energy, Inc. Xerox Corporation Key Qualifications and Experience: • Financial Services • Business Development and Strategy • Senior Leadership • Regulatory and Compliance • Global Business • Other Public Company Board Service • Finance • Human Capital Management | | Biography: • Former eBay board member from March 2015 to July 2015 • Partner at Patriot Global Management, L.P., an investment management firm • Former Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, from July 2012 to February 2017 • Served in various investment and research roles at P2 Capital Partners, LLC, a company with investments in technology and distribution, from March 2007 to July 2012 • Began his career as an investment banking analyst at Morgan Stanley, where he focused on merger and acquisition transactions across a variety of industries • M.B.A. from the University of Pennsylvania’s Wharton School of Business; B.S. in Applied Economics and Management Magna Cum Laude from Cornell University • Served in the United States Marine Corps | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | John J. Donahoe Age: 58 Director since: July 2015 Board Committees: None Other Current Public Company Boards: Nike, Inc. ServiceNow, Inc. Key Qualifications and Experience: • Payments and FinTech • Technology • Business Development and Strategy • CEO Experience • Global Business • Other Public Company Board Service • Finance • Consumer and Marketing • Cybersecurity/Information Security • Human Capital Management | | Biography: • President and Chief Executive Officer of ServiceNow, Inc., an enterprise cloud company, since April 2017 • Former President and Chief Executive Officer of eBay from March 2008 to July 2015, and was a director of eBay from January 2008 to July 2015 • Former President, eBay Marketplaces from March 2005 to January 2008 • Former Worldwide Managing Director of Bain & Company from January 2000 to February 2005 • M.B.A. from the Stanford Graduate School of Business; B.A. in Economics from Dartmouth College | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | David W. Dorman Age: 65 Director since: June 2015 Board Committees: Compensation (Chair) Governance Other Current Public Company Boards: CVS Health Corporation Key Qualifications and Experience: • Technology • Business Development and Strategy • CEO Experience • Regulatory and Compliance • Global Business • Other Public Company Board Service • Finance and Accounting • Consumer and Marketing • Cybersecurity/Information Security • Human Capital Management | | Biography: • Served as a board member of eBay from June 2014 to July 2015 • Non-Executive Chairman of the Board of CVS Health Corporation, a pharmacy healthcare provider, since May 2011 • Founding Partner of Centerview Capital Technology Fund, a private investment firm, since July 2013 • Chairman of the Board of InfoWorks, a portfolio company of Centerview as of January 2019 • Former Non-Executive Chairman of the Board of Motorola Solutions, Inc. (formerly Motorola, Inc.), a leading provider of business and mission-critical communication products and services for enterprise and government customers • Former Non-Executive Chairman of the Board of Motorola, Inc. from May 2008 until the separation of its mobile devices and home businesses in January 2011 • Former Senior Advisor and Managing Director to Warburg Pincus LLC, a global private equity firm from October 2006 to May 2008 • Former President and a director of AT&T Corporation from November 2005 until January 2006 • Former Chairman of the Board and Chief Executive Officer of AT&T Corporation from November 2002 until November 2005 • Former President of AT&T Corporation from 2000 to 2002 and the Chief Executive Officer of Concert Communications Services, a former global venture created by AT&T Corporation and British Telecommunications plc, from 1999 to 2000 • Serves as a Trustee for Georgia Tech Foundation, Inc. • B.S. in industrial management from Georgia Institute of Technology | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Belinda J. Johnson Age: 52 Director since: January 2017 Board Committees: Audit, Risk and Compliance Other Current Public Company Boards: None Key Qualifications and Experience: • Payments • Technology • Business Development and Strategy • Senior Leadership • Legal and Regulatory • Global Business • Finance • Consumer, Marketing, and Brand Management • Human Capital Management | | Biography: • Chief Operating Officer of Airbnb, Inc., a global community marketplace which provides access to unique accommodations and experiences, since February 2018 • Former Chief Business Affairs and Legal Officer of Airbnb, Inc., starting in July 2015, having joined as General Counsel in December 2011 • Former Senior Vice President and Deputy General Counsel of Yahoo! Inc., a digital information platform, until August 2011; Ms. Johnson also served in other positions at Yahoo! Inc. from August 1999 • Former General Counsel of Broadcast.com, Inc., an internet broadcasting company from November 1996 to August 1999 • B.A. from The University of Texas at Austin; J.D. from The University of Texas Law School | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Gail J. McGovern Age: 67 Director since: June 2015 Board Committees: Compensation Governance (Chair) Other Current Public Company Boards: DTE Energy Company Key Qualifications and Experience: • Technology • Business Development and Strategy • CEO Experience • Regulatory and Compliance • Global Business • Other Public Company Board Service • Finance • Consumer, Marketing, and Brand Management • Human Capital Management | | Biography: • Former board member of eBay from March 2015 to July 2015 • President and Chief Executive Officer of the American Red Cross, a humanitarian organization, since June 2008 • Serves as a trustee of John Hopkins Medicine • B.A. in quantitative sciences from Johns Hopkins University; M.B.A. from Columbia University | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Deborah M. Messemer Age: 61 Director since: January 2019 Board Committees: Audit, Risk and Compliance (Audit Committee Financial Expert) Other Current Public Company Boards: Allogene Therapeutics, Inc. Key Qualifications and Experience: • Financial Services • Technology • Business Development and Strategy • Senior Leadership • Regulatory and Compliance • Global Business • Other Public Company Board Service • Finance and Accounting • Human Capital Management | | Biography: • Former Major Market Managing Partner for KPMG, one of the world’s leading professional services firms, from 2008 through her retirement in September 2018 • Started her career in KPMG’s audit practice in 1982 and was admitted into the partnership in 1995; served as Audit Partner or Senior Account Executive for KPMG clients in a variety of industry sectors, including financial services and technology • Also serves on the Board of Directors of Carbon, Inc. • B.B.A. (Accounting) from The University of Texas at Arlington | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | David M. Moffett Age: 67 Director since: June 2015 Board Committees: Audit, Risk and Compliance (Chair) (Audit Committee Financial Expert) Other Current Public Company Boards: CSX Corporation Genworth Financial, Inc. Key Qualifications and Experience: • Payments • Business Development and Strategy • CEO Experience • Governmental, Regulatory and Compliance • Global Business • Other Public Company Board Service • Finance and Accounting • Human Capital Management | | Biography: • Former Lead Independent Director of PayPal from July 2015 through December 2018 • Former board member of eBay from July 2007 to July 2015 • Former Chief Executive Officer of Federal Home Loan Mortgage Corp. (“Freddie Mac”) from September 2008 until his retirement in March 2009 • Former director of Freddie Mac from December 2008 to March 2009 • Former Chief Financial Officer of Star Banc Corporation, a bank holding company, starting in 1993. During his tenure, played an integral role in the acquisition of Firstar Corporation in 1998 and later U.S. Bancorp in 2001. Mr. Moffett remained Chief Financial Officer of U.S. Bancorp until 2007 • Trustee for Columbia Atlantic Mutual Funds and University of Oklahoma Foundation; consultant to various financial services companies • B.A. from the University of Oklahoma; M.B.A. from Southern Methodist University | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Ann M. Sarnoff Age: 57 Director since: June 2017 Board Committees: Audit, Risk and Compliance Other Current Public Company Boards: None Key Qualifications and Experience: • Technology • Business Development and Strategy • Senior Leadership • Regulatory • Global Business • Other Public Company Board Service • Finance • Consumer and Marketing • Human Capital Management | | Biography: • President of BBC Worldwide Americas, recently renamed BBC Studios Americas, a media company that delivers high- quality, innovative and intelligent programming, since August 2015 • Served as Chief Operating Officer of BBC Worldwide North America from 2010 through July 2015 • Chair of the board of BritBox, a joint venture subscription streaming service launched in partnership with ITV in March of 2017 • Sits on the board, operating committee, and editorial committee of BBC America, a joint venture with AMC Networks • Former President of Dow Jones Ventures and Senior Vice President of Strategy for Dow Jones & Company, Inc. from June 2006 until joining BBC Worldwide in 2010 • Member of the board of directors of Georgetown University, the vice chair of the McDonough School of Business at Georgetown, and is on the board of the Harvard Business School Women’s Association of New York • Previously served on the Board of HSN, Inc., an interactive multichannel retailer, from December 2012 to December 2017 • B.S. from Georgetown University’s McDonough School of Business; MBA from Harvard Business School | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Daniel H. Schulman Age: 61 Director since: July 2015 Board Committees: None Other Current Public Company Boards: Symantec Corporation Verizon Key Qualifications and Experience: • Payments, Financial Services and FinTech • Technology • Business Development and Strategy • CEO Experience • Legal, Regulatory and Governmental • Global Business • Other Public Company Board Service • Finance and Accounting • Consumer, Marketing and Brand Management • Cybersecurity/Information Security • Human Capital Management | | Biography: • President and Chief Executive Officer of PayPal since July 2015; served as the President and CEO-Designee of PayPal from September 2014 until July 2015 • Former Group President, Enterprise Group of American Express Company, a financial services company, from August 2010 to August 2014 • Former President, Prepaid Group of Sprint Nextel Corporation, a cellular phone service provider, from November 2009 until August 2010, when Sprint Nextel acquired Virgin Mobile, USA, a cellular phone service provider • B.A. from Middlebury College; M.B.A. from New York University’s Leonard N. Stern School of Business | |
HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)
| | Frank D. Yeary Age: 55 Director since: July 2015 Board Committees: Audit, Risk and Compliance Other Current Public Company Boards: Intel Corporation Key Qualifications and Experience: • Financial Services • Business Development and Strategy • Senior Leadership • Governmental, Regulatory and Compliance • Global Business • Other Public Company Board Service • Finance and Accounting • Human Capital Management | | Biography: • Former board member of eBay from January 2015 to July 2015 • Manager at Darwin Capital Advisors, LLC, a private investment firm • Former Executive Chairman of CamberView Partners, LLC, a corporate advisory firm, until 2018 • Former Vice Chancellor of the University of California, Berkeley, a public university, from 2008 to 2012, where he led and implemented changes to the university’s financial and operating strategy • Prior to 2008, Mr. Yeary spent 25 years in the finance industry, most recently including as Managing Director, Global Head of Mergers and Acquisitions and as a member of the Management Committee at Citigroup Investment Banking, a financial services company • B.A. in History and Economics from the University of California, Berkeley | |
CONSIDERATION OF DIRECTOR NOMINEES
CONSIDERATION OF DIRECTOR NOMINEES Stockholder Recommendations and Nominations The Governance Committee is responsible for recommending to the Board a slate of nominees for election at each annual meeting of stockholders. Nominees may be suggested by directors, members of management, stockholders, or by a third-party firm. In evaluating potential director nominees, the Governance Committee considers a wide range of factors, including the criteria described below under “Director Selection Process and Qualifications.” Stockholders who would like the Governance Committee to consider their recommendations for director nominees should submit their recommendations in writing by mail to the Governance Committee in care of our Corporate Secretary at PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131, stating the candidate’s name and qualifications for Board membership. Recommendations by stockholders that are made in accordance with these procedures will receive the same consideration by the Governance Committee as other suggested nominees. In addition, our Restated Certificate of Incorporation (“Certificate of Incorporation”) and Amended and Restated Bylaws (“Bylaws”) provide proxy access rights that permit eligible stockholders to nominate candidates for election to the Board in the Company’s proxy statement. These proxy access rights permit a stockholder, or group of up to 20 stockholders, owning 3% or more of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to 20% of the Board, provided that the stockholder(s) and nominee(s) satisfy the requirements and procedures described in our Certificate of Incorporation and Bylaws. Director Selection Process and Qualifications The Governance Committee is responsible for recommending to the Board the qualifications for Board membership and for identifying, assessing and recommending qualified director candidates for the Board’s consideration. The Board’s membership qualifications and nomination procedures are set forth in the Corporate Governance Guidelines.
CONSIDERATION OF DIRECTOR NOMINEES
| | 2019 Proxy Statement |
CONSIDERATION OF DIRECTOR NOMINEES
| Proposal 1 | 21 |
CONSIDERATION OF DIRECTOR NOMINEES
The Board and Governance Committee consider the following factors and principles in evaluating and selecting director nominees:
CONSIDERATION OF DIRECTOR NOMINEES
| • | Directors should have high-level managerial experience in a relatively complex organization or be accustomed to dealing with complex problems; |
CONSIDERATION OF DIRECTOR NOMINEES
| • | Directors should represent the balanced, best interests of the stockholders as a whole rather than special interest groups or constituencies; |
CONSIDERATION OF DIRECTOR NOMINEES
| • | Directors should be individuals of the highest character and integrity, with the ability to work well with others and with sufficient time available to devote to the affairs of the Company in order to carry out their responsibilities; |
CONSIDERATION OF DIRECTOR NOMINEES
| • | In addressing the overall composition of the Board, diversity (including gender, race, and ethnicity), age, international background, and expertise should be considered in evaluating potential Board members; |
CONSIDERATION OF DIRECTOR NOMINEES
| • | The interplay of a candidate’s background and expertise with that of other Board members and the extent to which a candidate may be a desirable addition to any Board committee should be considered; |
CONSIDERATION OF DIRECTOR NOMINEES
| • | The Board should include individuals with highly relevant professional experience; and |
CONSIDERATION OF DIRECTOR NOMINEES
| • | The Board should be composed of directors who are highly engaged with our business. |
CONSIDERATION OF DIRECTOR NOMINEES
In particular, the Governance Committee values diversity as a factor in selecting nominees. When searching for new directors, the Governance Committee actively seeks out qualified women and individuals from underrepresented ethnic groups to include in the pool from which Board nominees are chosen. In keeping with this commitment to inclusion and diversity, 50% of our current Board is comprised of women or underrepresented ethnic groups. From time to time, the Governance Committee may retain an executive search firm to assist in identifying, screening, and evaluating potential candidates. Director Compensation The Compensation Committee is responsible for reviewing and making recommendations to the Board regarding compensation paid to non-employee directors for their Board and committee services. On an annual basis, the Compensation Committee reviews the non-employee director compensation program, receiving input from the Compensation Committee’s independent compensation consultant regarding market practices and the competitiveness of the non-employee director compensation program in relation to the general market and the Company’s peer group.
2018 DIRECTOR COMPENSATION
2018 DIRECTOR COMPENSATION For 2018, each non-employee director of the Company received the following annual retainers on the first trading day after January 1, 2018:
2018 DIRECTOR COMPENSATION
| 2018 Annual Retainers: | | | All Non-Employee Directors | $80,000/year | | Non-Executive Board Chair | $100,000/year | | Lead Independent Director | $75,000/year | | ARC Committee Chair | $40,000/year | | Compensation Committee Chair and Governance Committee Chair | $20,000/year | | ARC Committee Member | $20,000/year | | Compensation Committee Member | $18,000/year | | Governance Committee Member | $10,000/year |
2018 DIRECTOR COMPENSATION
A non-employee director who serves as the Board Chair and/or as the chair of a committee was entitled to receive the Board Chair annual retainer and/or committee chair annual retainer in addition to the non-employee director annual retainer, but was not entitled to the committee member annual retainer for serving as a member of that specific committee. A non-employee director could elect to receive 100% of his/her annual retainer(s) in fully vested stock awards of PayPal common stock having a value equal to the annual retainer(s), in lieu of cash. If a non-employee director was appointed or elected to serve as a member of the Board (or appointed to serve as a member of a committee or as a chair of a committee in which he/she was not a member or chair prior to such appointment) following the annual retainer payment date (i.e., the first trading day of the year), the non-employee director received a prorated annual retainer, based on the number of days from the appointment or election date to December 31 of the year.
2018 DIRECTOR COMPENSATION
| 22 | Proposal 1 |
2018 DIRECTOR COMPENSATION
2018 Equity Awards: In addition to the annual retainers, all non-employee directors of PayPal received the following fully vested stock awards of PayPal common stock following PayPal’s 2018 annual meeting of stockholders:
2018 DIRECTOR COMPENSATION
| All Non-Employee Directors | $275,000 in PayPal common stock | | Board Chair(1) | $100,000 in PayPal common stock |
2018 DIRECTOR COMPENSATION
1 The Board Chair received $100,000 in PayPal common stock in addition to the $275,000 in PayPal common stock that he received for services as a non-employee director. The number of shares of PayPal common stock subject to the stock award is determined by dividing the amount of the annual equity award by the per share fair market value (i.e., the closing price of our common stock) on the date of the annual stockholders meeting, rounded up to the nearest whole share. For 2018, if a non-employee director was appointed or elected at any time other than at an annual stockholders meeting, such director was eligible to receive a prorated annual equity award, as of the date of his or her appointment or election, for the period prior to the first annual stockholders meeting following his or her appointment or election, determined by (i) multiplying the amount of the annual equity award (i.e., $275,000 and, with respect to the additional equity award to the Board Chair, $100,000) by a fraction, the numerator of which was the number of days from the date of appointment or election to the first anniversary of the most recent annual stockholders meeting, and the denominator of which was 365, and (ii) dividing such amount by the per share fair market value on the date of appointment or election, rounded up to the nearest whole share.
2019 DIRECTOR COMPENSATION
2019 DIRECTOR COMPENSATION In late 2018, the Compensation Committee recommended certain adjustments to the annual retainers for the 2019 director compensation program based on market practices. Effective January 1, 2019, each non-employee director of the Company will receive the following annual retainers on the first trading day of the year in which the director serves as a non-employee director of the Company. The Non-Executive Board Chair’s retainer was reduced from $100,000/year to $50,000/year to bring the fees more in line with the Company’s peer group.
2019 DIRECTOR COMPENSATION
| 2019 Annual Retainers: | | | All Non-Employee Directors | $80,000/year | | Non-Executive Board Chair | $50,000/year | | Lead Independent Director | $75,000/year | | ARC Committee Chair | $40,000/year | | Compensation Committee Chair and Governance Committee Chair | $20,000/year | | ARC Committee Member | $20,000/year | | Compensation Committee Member | $18,000/year | | Governance Committee Member | $10,000/year |
2019 DIRECTOR COMPENSATION
2019 Equity Awards: In late 2018, the Compensation Committee also recommended certain adjustments to the annual equity awards under the 2019 director compensation program based on market practices. In addition to the annual retainers as set forth above, all non-employee directors of the Company will receive the following fully vested stock awards of PayPal common stock following PayPal’s 2019 annual meeting of stockholders. The Non-Executive Board Chair’s annual stock award was reduced from $100,000/year in value to $50,000/year in value to bring the award more in line with the Company’s peer group.
2019 DIRECTOR COMPENSATION
| All Non-Employee Directors | $275,000 in PayPal common stock | | Board Chair(1) | $50,000 in PayPal common stock |
2019 DIRECTOR COMPENSATION
1 The Board Chair receives $50,000 in PayPal common stock in addition to the $275,000 in PayPal common stock that he receives for services as a non-employee director. Deferred Compensation Beginning in 2019, our non-employee directors are eligible to defer compensation earned in 2019 pursuant to the PayPal Holdings, Inc. Deferred Compensation Plan (“DCP”), our non-qualified deferred compensation plan. The DCP allows participants to set aside tax-deferred amounts. The investment return on the deferred cash amounts is linked to the performance of a range of market-based investment choices made available pursuant to the DCP.
2019 DIRECTOR COMPENSATION
| | 2019 Proxy Statement |
2019 DIRECTOR COMPENSATION
| Proposal 1 | 23 |
2018 DIRECTOR COMPENSATION TABLE
2018 DIRECTOR COMPENSATION TABLE The following table summarizes the total compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2018. Ms. Messemer joined the Board in January 2019 and did not receive any compensation in fiscal year 2018.
2018 DIRECTOR COMPENSATION TABLE
| Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | Option Awards(3) ($) | All Other Compensation ($) | Total ($) | | Rodney C. Adkins | 102,658 | 275,023 | — | — | 377,681 | | Wences Casares | 98,000 | 275,023 | — | — | 373,023 | | Jonathan Christodoro | 98,000 | 275,023 | — | — | 373,023 | | John J. Donahoe | 180,000 | 375,076 | 67,487 | | 622,563 | | David W. Dorman | 110,000 | 275,023 | — | — | 385,023 | | Belinda J. Johnson | 100,000 | 275,023 | — | — | 375,023 | | Gail J. McGovern | 118,000 | 275,023 | — | — | 393,023 | | David M. Moffett | 195,000 | 275,023 | — | — | 470,023 | | Ann M. Sarnoff | 100,000 | 275,023 | — | — | 375,023 | | Frank D. Yeary | 100,000 | 275,023 | — | — | 375,023 |
2018 DIRECTOR COMPENSATION TABLE
1 The amounts reported in the Fees Earned or Paid in Cash column reflect the cash fees earned by each non-employee director in 2018, which includes fees with respect to which the following directors elected to receive fully vested shares of PayPal common stock in lieu of cash:
2018 DIRECTOR COMPENSATION TABLE
| Name | Fees Forgone ($) | Shares Received (#) | | Wences Casares | 98,000 | 1,328 | | John J. Donahoe | 180,000 | 2,438 | | David W. Dorman | 110,000 | 1,490 | | Ann M. Sarnoff | 100,000 | 1,355 | | Frank D. Yeary | 100,000 | 1,355 |
2018 DIRECTOR COMPENSATION TABLE
2 Amounts shown represent the grant date fair value of the stock awards granted on May 23, 2018 to our non-employee directors following our 2018 annual meeting of stockholders, as computed in accordance with FASB ASC Topic 718. As of December 31, 2018, our non-employee directors held the following deferred stock units (“DSUs”) and stock options:
2018 DIRECTOR COMPENSATION TABLE
| Name | Total DSUs Held as of 12/31/18 (#) | Total Options Held as of 12/31/18 (#) | | Rodney C. Adkins | — | — | | Wences Casares | — | — | | Jonathan Christodoro | 5,353 | — | | John J. Donahoe | 2,464 | — | | David W. Dorman | 9,488 | — | | Belinda J. Johnson | — | — | | Gail J. McGovern | 3,711 | — | | David M. Moffett | 49,001 | — | | Ann M. Sarnoff | — | — | | Frank D. Yeary | 5,460 | — |
2018 DIRECTOR COMPENSATION TABLE
3 The amount shown for Mr. Donahoe in this column represents the incremental fair value related to an extension of the exercise period (from July 17, 2018 to December 31, 2018) for stock options granted on April 1, 2014 and January 15, 2015. The incremental fair value with respect to the award was computed as of the modification date in accordance with FASB ASC Topic 718.
2018 DIRECTOR COMPENSATION TABLE
| 24 | Corporate Governance |
2018 DIRECTOR COMPENSATION TABLE
Corporate Governance Corporate governance at PayPal is designed to promote the long-term interests of our stockholders, strengthen Board and management accountability, foster responsible decision-making, and engender public trust. We believe that strong corporate governance practices that provide meaningful rights to our stockholders and ensure Board and management accountability are essential to our long-term success. Stockholder Engagement We recognize the value of a robust stockholder outreach program and engaging in a regular, constructive dialogue with our stockholders on governance, executive compensation, and environmental and social issues relevant to our business so we can better understand their views and interests, solicit their feedback, and share our perspective on these important subjects. Following our 2018 annual meeting, we proactively reached out to our institutional investors representing approximately 60% of our common stock, and ultimately engaged with holders of almost 35% of our common stock. In addition to this governance-focused outreach, our Investor Relations team extensively engages with our stockholders throughout the year, frequently together with our CEO or our CFO. Feedback received from stockholders is shared with the Board and its principal committees throughout the year and serves as an input in our Board’s deliberations and decision-making process. An overview of the key areas of focus and feedback provided by our stockholders during these meetings is provided in the table below:
2018 DIRECTOR COMPENSATION TABLE
| Key Areas of Focus and Feedback Received | | | | | Business Strategy | Governance | Executive Compensation | Sustainability | | • Stockholders highlighted and appreciated PayPal’s innovative and strategic business initiatives | • Overall satisfaction with PayPal’s governance and Board practices | • Stockholders appreciated the Compensation Committee’s focus on emphasizing performance-based compensation elements | • Support for release of PayPal’s first comprehensive ESG report, the 2017 Global Impact Report (GIR) | | • Discussed PayPal’s capital allocation strategy and priorities, including acquisitions completed in 2018 | • Appreciated diversity of the Board and discussed director selection process and recent additions to the Board | • Discussed the Compensation Committee’s metric selection process | • Discussed next steps in building out PayPal’s sustainability (ESG) strategy and program | | • Discussed the Board’s role in overseeing execution of company strategy | • Stockholders wanted to better understand the Board’s skill sets and rationale behind the current composition | • Discussed current peer group and the various criteria used in determining PayPal peers | • Appreciated PayPal’s leadership in fostering inclusion and highlighted the value of a diverse workforce |
2018 DIRECTOR COMPENSATION TABLE
The Board has adopted the Corporate Governance Guidelines of the Board of Directors (“Corporate Governance Guidelines”) to serve as a framework within which the Board conducts its business. Our Corporate Governance Guidelines, charters of our principal Board committees, our Code of Business Conduct and Ethics (“Code of Business Conduct”), and other key corporate governance documents and materials are available on our Investor Relations website at https://investor.paypal-corp.com/corporate-governance.cfm. The following sections provide an overview of PayPal’s corporate governance practices. The Board’s Role and Responsibilities The Board is responsible for providing advice and oversight of the strategic and operational direction of the Company and overseeing its executive management to support the long-term interests of the Company and its stockholders.
The Compensation Committee of the Board of Directors
| NAMED EXECUTIVE OFFICERS | 38 | | EXECUTIVE SUMMARY | 39 | | 2018 PERFORMANCE HIGHLIGHTS | 39 | | EXECUTIVE COMPENSATION PROGRAM DESIGN | 40 | | COMPENSATION ALIGNED WITH PERFORMANCE RESULTS | 40 | | Investor Feedback | 41 | | 2018 NEO Compensation Program Elements | 41 | | CEO PSU Award | 42 | | Pay Mix | 44 | | KEY 2018 COMPENSATION OUTCOMES | 45 | | 2018 AIP | 45 | | 2016-2018 PBRSUs | 45 | | Key Compensation Policies and Practices | 45 | | COMPENSATION FRAMEWORK | 47 | | INCENTIVE (PERFORMANCE-BASED) COMPENSATION FOR 2018 | 47 | | Annual Incentive Plan | 47 | | Long-Term Incentive Components | 51 | | CEO PSU Award | 54 | | OTHER COMPENSATION ELEMENTS | 56 | | Base Salary | 56 | | Deferred Compensation | 57 | | Other Benefits | 57 | | OTHER COMPENSATION PRACTICES AND POLICIES | 58 | | ROLES AND RESPONSIBILITIES | 58 | | Compensation Committee | 58 | | Compensation Consultant | 58 | | CEO and the Human Resources Department | 58 | | OUR COMPENSATION PEER GROUP | 59 | | STOCK OWNERSHIP GUIDELINES | 60 | | HEDGING AND PLEDGING POLICY | 61 | | CLAWBACK POLICY | 61 | | TAX AND ACCOUNTING CONSIDERATIONS | 61 | | COMPENSATION COMMITTEE REPORT | 62 |
EXECUTIVE COMPENSATION PROGRAM DESIGN
| • | One Team – maintain unified goals and objectives of the annual short- and long-term incentive program for the entire executive leadership team to drive operational decisions and Company performance; |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| | Form of Payment | Performance Period | Performance Criteria | Objectives | | Salary | Cash | Ongoing | • Alignment of salary with performance is evaluated on an annual basis | • Compensates for expected day-to-day performance • Rewards individuals’ current contributions • Reflects scope of roles and responsibilities • Attracts highly capable leaders in an extremely competitive talent market | | Annual Incentive Plan (“AIP”) | Performance-Based Restricted Stock Units (“PBRSUs”) (75%) | One year | • Revenue and Non-GAAP Operating Margin, with Net New Actives modifier | • Compensates for successful annual performance • Motivates achievement of short-term performance goals designed to enhance value of Company • Significant equity portion to further align with stockholder interests • Attracts highly capable leaders in an extremely competitive talent market | | | Cash (25%) | | • Individual Performance | | | Long-Term Incentive Plan (“LTI”) | PBRSUs (50%) | Three years | • FX-Neutral Revenue Compound Annual Growth Rate (“CAGR”) • Free Cash Flow CAGR | • Compensates for successful achievement of three-year performance goals designed to enhance long-term value of Company • Intended to satisfy long-term retention objectives • Attracts highly capable leaders in an extremely competitive talent market | | | Restricted Stock Units (“RSUs”) (50%) | Vests annually over three years | • Service-based vesting; ultimate value varies based on stock price performance | • Compensates for the creation of long-term value of Company • Recognizes potential future contributions • Intended to satisfy long-term retention objectives • Attracts highly capable leaders in an extremely competitive talent market |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
CEO PSU Award In addition to the annual long-term incentive award, in 2018 the Compensation Committee granted a performance-based equity award (the “CEO PSU Award”) to Mr. Schulman which will be earned only if meaningful and sustained stock price performance targets are achieved during a five-year performance period. This award is consistent with PayPal’s “pay for performance” philosophy to further incentivize Mr. Schulman to drive long-term stockholder value creation. The CEO PSU Award has longer vesting periods than PayPal’s annual long-term incentive awards, further emphasizing the desire to align Mr. Schulman’s interests with those of stockholders over the longer-term. The Compensation Committee considered the following factors as it contemplated Mr. Schulman’s executive compensation in early 2018:
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | The instrumental role that Mr. Schulman continues to play in PayPal’s strategic transformation, including by: |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Expanding the Company’s value proposition following its separation from eBay and becoming an independent public company in July 2015 |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Empowering customer choice |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Actively partnering within the ecosystem with credit card networks, financial institutions, and technology companies |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Increasing PayPal’s addressable market |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Transforming PayPal from a payments button to an open payments platform |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | PayPal’s strong financial and operational performance under Mr. Schulman’s leadership, including strong growth in both revenue and earnings, as well as payment volume, net new active accounts, and engagement |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Mr. Schulman is uniquely qualified to lead PayPal given his: |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Deep expertise in payments, mobile technology, innovation, and regulatory and cybersecurity matters |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Leadership experience and vision in growing large, complex businesses |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Experience transforming financial services, while driving cultural change and instilling a values-based environment that champions diversity and inclusion |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Employee retention is one of our core business risks and competition for proven CEO talent is particularly intense. The Compensation Committee believed Mr. Schulman’s leadership would enable PayPal to continue to execute on its multi-year strategic plan and deliver sustainable, long-term growth |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | An award based on meaningful stock price targets over a five-year period was consistent with PayPal’s “pay for performance” philosophy and: |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Complements PayPal’s existing executive compensation program |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Further incentivizes Mr. Schulman to drive stockholder value creation over a longer time frame |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Helps ensure that Mr. Schulman’s interests are aligned with those of long-term stockholders |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | Aligns with the Board’s stretch share price performance goals for Mr. Schulman that were not directly addressed in the core compensation program, because the Compensation Committee believed that as the CEO and leader of PayPal’s strategic transformation, Mr. Schulman was uniquely positioned to directly affect our share price with his performance and execution of his strategic vision for PayPal |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
| • | The importance of implementing appropriate stockholder-friendly safeguards in the design of any award outside of our standard annual long-term incentive program. |
COMPENSATION ALIGNED WITH PERFORMANCE RESULTS
PayPal has performed extremely well since becoming an independent public company in July 2015 both on an absolute basis and relative to the broader market. Around the time the CEO PSU Award was granted, PayPal’s stock price was at its highest since becoming an independent public company. In a broader market context, the Board recognized that the grant was being made during the longest bull market in history for the S&P 500 Index, and that the market environment could change, putting increased pressure on share price. Achievement of the stretch performance goals established under the CEO PSU Award will require sustaining PayPal’s strong performance over the next several years and continuing to grow and create stockholder value over the long term.
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1 1 Reflects stock price performance from July 20, 2015 (the first day of “regular way” trading as an independent public company) to March 29, 2018 (the last trading day immediately prior to the grant date of April 1, 2018 for the CEO PSU Award). 2 Peer group figure presented is a market cap weighted index value; peers include companies listed on page 60.
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| 44 | Compensation Discussion and Analysis |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| | Form of Payment | Performance Period | Performance Alignment | Objectives | | CEO PSU Award | PSUs (100%) | Five years | • Awards granted when the average closing stock price for the 90 trading days prior to grant date was $77.84 • 50% earned if PayPal achieves a 90-trading day average closing stock price target of $105, approximately 38% increase over the price at grant date • 50% earned if PayPal achieves a 90-trading day average closing stock price target of $125, approximately 65% increase over the price at grant date • Backloaded vesting, with earned awards vesting on the third, fourth, and fifth anniversaries of grant date; no vesting if goals are not met • Earned shares generally required to be held until the fifth anniversary of the grant date | • Serve as a complement to PayPal’s existing executive compensation program, recognizing that compensation outside of a standard incentive program should be carefully designed with appropriate stockholder-friendly safeguards • Incentivize stockholder value creation over a longer time frame than under our standard incentive program • Closely align Mr. Schulman’s interests with those of long-term stockholders • Require more significant performance results for Mr. Schulman to earn the award • Address risks associated with a highly competitive market for proven executive talent |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
The Compensation Committee worked closely with its independent compensation consultant to design the CEO PSU Award for Mr. Schulman, which was granted in April 2018. Below is a summary of the key details and features of the CEO PSU Award:
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | The CEO PSU Award was granted with a grant date fair value of $16 million. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | The CEO PSU Award features an extended five-year performance period: |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | 50% of the shares subject to the CEO PSU Award may be earned if PayPal achieves a stock price target of $105 based on a 90-trading day average closing price; |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | The remaining 50% of the shares subject to the award may be earned if PayPal achieves a stock price target of $125 based on a 90-trading day average closing price. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | The CEO PSU Award features backloaded vesting. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | If any portion of the award is earned before the third anniversary of the grant date, the earned award will vest ratably on the third, fourth, and fifth anniversaries of the grant date, subject to Mr. Schulman’s continued service through the applicable vesting date. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | Any portion of the award earned after the third anniversary of the grant date but before the fourth anniversary of the grant date will vest one-third on the date such portion is earned, and one-third on each of the fourth and fifth anniversaries of the grant date. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | Two-thirds of any portion of the CEO PSU Award that is earned after the fourth anniversary of the grant date will vest on the date such portion is earned, with the remaining one-third vesting on the fifth anniversary of the grant date. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | Earned and vested shares under the CEO PSU Award are generally required to be held until the fifth anniversary of the grant date. |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| • | The award is subject to forfeiture if the stock price targets are not met over the performance period (see footnote 5 to the table under the “Potential Payments Upon Termination or Change in Control” below for a description of the treatment of the CEO PSU Award upon a termination of employment or change in control). |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
Pay Mix The Compensation Committee believes that long-term equity incentives should comprise the majority of the target total direct compensation opportunity for our NEOs. We believe that our executive compensation program was effective at incentivizing results in 2018 by appropriately aligning pay and performance. The following charts show the 2018 Target Total Direct Compensation mix for our CEO, Mr. Schulman, and the average 2018 Target Total Direct Compensation mix for our other NEOs. Target Total Direct Compensation is the sum of (i) 2018 base salary, (ii) target 2018 annual incentive award (based on the grant
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| | 2019 Proxy Statement |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
| Compensation Discussion and Analysis | 45 |
Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1
date fair value for the portion of the award delivered as PBRSUs), and (iii) target annual long-term incentive award (based on the grant date fair value). For our CEO, Total Target Direct Compensation also includes the CEO PSU Award (based on the grant date fair value—see “Compensation Discussion and Analysis—Compensation Framework—Incentive (Performance-Based) Compensation for 2018—CEO PSU Award” for further details).
KEY 2018 COMPENSATION OUTCOMES
KEY 2018 COMPENSATION OUTCOMES 2018 AIP In early 2019, the Compensation Committee approved specific awards of annual incentives earned under the 2018 AIP based upon Company performance with respect to Revenue, Non-GAAP Operating Margin, and Net New Actives performance, as well as each executive’s individual performance, as further discussed under “Compensation Framework — Incentive (Performance-Based) Compensation for 2018 — Annual Incentive Plan.” Based on our 2018 financial results, the Compensation Committee determined that the achievement level of the Company performance component under the 2018 AIP was 130% of target. The 2018 AIP payments were higher than target due to our strong financial and operational performance during the year, which exceeded our approved budget and operating plan for 2018 and the midpoint of full year guidance provided to the investment community in January 2018. 2016-2018 PBRSUs In early 2016, the Compensation Committee granted our NEOs long-term performance-based incentive awards in the form of PBRSUs (the “2016-2018 PBRSUs”) subject to a three-year performance period from January 1, 2016 to December 31, 2018. The performance measures were comprised of the compound annual growth rates of FX-Neutral Revenue and Free Cash Flow over the three-year performance period as equally-weighted measures, as further discussed under “Compensation Framework — Incentive (Performance-Based) Compensation for 2018 — Long-Term Incentive Components”. Based on our financial results, the Compensation Committee determined in early 2019 that the achievement level of the 2016-2018 PBRSUs was 200% of target. Key Compensation Policies and Practices We are committed to maintaining strong governance standards with respect to our executive compensation program, policies, and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.
KEY 2018 COMPENSATION OUTCOMES
| What We Do | | | | Independent Compensation Consultant | | The Compensation Committee engages its own independent compensation consultant to advise on executive and non-employee director compensation matters. | | Annual Compensation Peer Group Review | | The Compensation Committee, with the assistance of its compensation consultant, reviews the composition of our compensation peer group annually and makes adjustments to the composition of that peer group, if deemed appropriate based on our executive compensation philosophy and principles. | | Annual Say-on-Pay Vote | | We conduct an annual advisory (non-binding) vote on the compensation of our NEOs (a “say-on-pay” vote). At our 2018 Annual Meeting, more than 88% of the votes cast on the say-on-pay proposal were voted in support of the 2017 compensation of our NEOs. | | Investor Engagement | | In addition to conducting an annual say-on-pay vote, we are committed to ongoing engagement with our investors on executive compensation and governance matters. These engagement efforts take place through teleconferences, in-person meetings, and correspondence with our investors. | | Annual Risk Assessment | | Based on our annual risk assessment, we have concluded that our compensation program does not present any risk that is reasonably likely to have a material adverse effect on PayPal. | | Clawback Policy | | Each of our NEOs is subject to a clawback policy, which permits the Compensation Committee to require forfeiture or reimbursement of incentive compensation paid or awarded to the NEO in certain circumstances. | | Robust Stock Ownership Guidelines | | Our stock ownership guidelines are designed to align the long-term interests of our NEOs and non-employee directors with those of our stockholders and promote the Company’s commitment to sound corporate governance. Our guidelines require ownership of shares of PayPal common stock with a value equal to a multiple of base salary (6x for CEO and 3x for EVPs) or annual retainer (5x for non-employee directors) and include stock retention requirements for our executive officers until his or her requisite ownership level is reached. | | Prohibition of Hedging and Pledging Transactions | | Our Insider Trading Policy prohibits all Board members, officers, and employees from entering into any hedging or monetization transactions relating to our securities, including the use of PayPal derivative securities as collateral in a margin account or for any loan or extension of credit, or otherwise trading in any instrument relating to the future price of our securities. In addition, no Board member or executive officer may pledge our securities as collateral for loans. | | What We Don’t Do | | | | No Excise Tax Gross-Ups on CIC Payments | | We do not provide our NEOs with any excise tax gross-ups or other payment or reimbursement of excise taxes on severance or other payments in connection with a change in control of PayPal. | | No “Single- Trigger” CIC Payments and Acceleration of Equity Awards | | We do not make “single-trigger” change-in-control payments or maintain any plans that require single-trigger change-in-control acceleration of equity awards to our NEOs upon a change in control of PayPal. | | No Tax Gross-Ups on Perquisites | | We do not provide our NEOs with any tax gross-ups on perquisites, other than in limited circumstances for business-related relocations and international business travel-related benefits that are under our control, at our direction and deemed to benefit our business operations. | | No Discounting of Stock Options or Repricing of Underwater Options | | We expressly prohibit the discounting of stock options and the repricing of underwater stock options without stockholder approval under our equity compensation plan. | | No Guaranteed Bonuses | | Our annual incentive plan is entirely performance-based and our NEOs are not guaranteed any minimum levels of payment. |
INCENTIVE (PERFORMANCE-BASED) COMPENSATION FOR 2018
| • | performance against financial performance measures; |
INCENTIVE (PERFORMANCE-BASED) COMPENSATION FOR 2018
No specific weightings were assigned to these Incentive Compensation Factors, and individual performance was evaluated based on a holistic and subjective assessment of each individual NEO’s performance against these factors. Annual Incentive Plan The 2018 AIP provided each of our NEOs with the opportunity to earn annual incentive compensation based on Company performance and individual performance. The Compensation Committee believes that it is important to have our executives’ annual incentives tied primarily to our overall performance, with individual compensation differentiated based on individual performance.
Target Incentive Amounts
| • | with reference to the Compensation Committee’s assessment of data from public filings of our compensation peer group companies and general industry data for comparable technology companies that were included in proprietary third-party compensation surveys (the specific identity of the respondents of which are not provided to the Compensation Committee or the Company); |
Target Incentive Amounts
For 2018, the Compensation Committee did not make any changes to the target annual incentive opportunity percentages set for 2017 for each NEO. The following table sets forth the 2018 AIP target annual incentive opportunity (the “Target Incentive Amount”) for each of our NEOs, expressed as a percentage of 2018 base salary and in dollars.
Target Incentive Amounts
| Name | Annual Incentive Target as Percentage of Base Salary | Target Incentive Amount ($) | | Daniel H. Schulman | 200% | 2,000,000 | | John D. Rainey | 100% | 750,000 | | Gary J. Marino | 100% | 700,000 | | Louise Pentland | 100% | 750,000 | | William J. Ready | 100% | 750,000 |
Target Incentive Amounts
The Compensation Committee determined that the 2018 AIP Funding Threshold (which must be achieved in order for the 2018 AIP to be funded) would be a minimum Revenue threshold of $14.18 billion. In addition, at least one of the minimum thresholds for Revenue and Non-GAAP Operating Margin would need to be met to trigger any payments under the Company performance component of the 2018 AIP. If the 2018 AIP Funding Threshold was met, Revenue and Non-GAAP Operating Margin would be applied as equally weighted Company performance measures for determining the payout of the Company performance component of the 2018 AIP, with the Company performance payment level ranging from a minimum level of 25% to a maximum level of 200%. The NNAs operational performance measure would serve as a modifier to adjust the Company performance payout one percentage point for each 2.5 million increase of NNAs above the target. The Company performance payment level may not exceed 200% of the target applicable to the Company performance component of the 2018 AIP. If the 2018 AIP Funding Threshold was met, 75% of the Target Incentive Amount would be determined based on our Revenue and Non-GAAP Operating Margin financial performance as measured against the pre-established performance levels, subject to the NNA modifier, and the remaining 25% of the Target Incentive Amount would be determined based on individual performance. The table below shows the following with respect to the 2018 AIP Company performance measures:
Target Incentive Amounts
| • | The resulting Company Performance Score, defined as a payout percentage based on our performance as measured against the pre-established performance levels for the 2018 AIP. |
Individual Performance Measures
Individual Performance Measures To facilitate differentiation based on individual performance, 25% of the Target Incentive Amount for our NEOs was based on an individual performance score which could range from 0% to 200% (the “Individual Performance Score”). To determine each NEO’s Individual Performance Score in early 2019, Mr. Schulman presented to the Compensation Committee his assessment of each NEO’s individual performance during 2018, and the Compensation Committee assessed Mr. Schulman’s individual performance during 2018, in each case, with respect to one or more individual performance factors (collectively, the “Performance Factors”).
Individual Performance Measures
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Individual Performance Measures
The Performance Factors related specifically to each NEO’s job function and generally encompassed the following items for each NEO:
Individual Performance Measures
| NEO | Performance Factors | | | Daniel H. Schulman | • | Provided strategic leadership and oversaw key strategic partnerships and corporate transactions. | | | • | Led PayPal through a strong year of financial performance. | | | • | Led a comprehensive strategic review of PayPal’s business portfolio that resulted in the acquisitions of Hyperwallet, iZettle, Jetlore, and Simility, which were announced and completed in calendar year 2018. | | | • | Continued to deepen and strengthen PayPal’s mission and vision to be a true Customer Champion and support customer choice. | | | • | Continued implementation of a set of values and core beliefs for PayPal to drive cultural change and create an environment centered on collaboration, innovation, wellness, and inclusion. | | John D. Rainey | • | Led PayPal’s financial reporting, analysis, and planning organization, including overseeing PayPal’s internal controls over financial reporting. | | | • | Expanded role to lead the new Global Customer Operations organization, consisting of the customer services and operations functions in a complex customer-facing organization. | | | • | Continued to implement programs and processes to facilitate cost savings and operational efficiencies across the business. | | | • | Executed financial plans designed to meet or exceed growth, margin, and cash flow targets. | | | • | Successfully managed corporate capital allocation decisions consistent with creation of stockholder value. | | | • | Maintained high level of integrity over financial reporting and led efforts to further enhance control environment. | | | • | Led effective Investor Relations activities, including 2018 Investor Day. | | Gary J. Marino | • | Led the transformation of our sales and marketing organization from a regional design to global sales and marketing and customer segments teams, with overall responsibility for all front-end activities for our businesses worldwide. | | | • | Delivered significant top-tier growth and expansion in high growth markets. | | | • | Oversaw PayPal’s marketing strategy and provided leadership on brand expansion strategies. | | Louise Pentland | • | Led Business Affairs function, which includes legal and global human resources, and the Corporate Affairs function, comprised of communications, government relations, and social innovation. | | | • | Drove achievements and advancements of Company core cultural values, centered on diversity and inclusion, oversaw the development of ESG strategy and reporting, and drove enterprise-wide corporate governance initiatives to reflect best practices. | | | • | Led enterprise-wide organizational transformations of business affairs and human resources. | | | • | Provided distinctive leadership and judgment in ongoing litigation strategy, mergers and acquisitions, and business matters. | | William J. Ready | • | Led the expansion of PayPal’s value proposition through product innovation, which led to significantly higher adoption of PayPal experiences. | | | • | Enhanced end-to-end customer experience through the rollout of product innovations and initiatives to drive efficiencies. | | | • | Led enhancement of our business intelligence capabilities and products, including the globalization of One Touch. | | | • | Drove significant cost savings initiatives while maintaining high levels of customer satisfaction through supporting customer choice and being a true Customer Champion. | | | • | Led product strategy as a core competency of the business. |
Individual Performance Measures
In determining the Individual Performance Score for each NEO, Mr. Schulman and the Compensation Committee did not place specific weightings on the Performance Factors, and instead performed a holistic and subjective assessment of each individual NEO’s Performance Factors, taking into account the relative importance to us of each Performance Factor. Mr. Schulman recommended to the Compensation Committee each NEO’s Individual Performance Score other than his own.
Individual Performance Measures
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Individual Performance Measures
| Compensation Discussion and Analysis | 51 |
Individual Performance Measures
After considering Mr. Schulman’s recommendations regarding the other NEOs’ Individual Performance Scores, reviewing each individual’s performance with respect to the Performance Factors, and considering its own observations and assessments of each NEO’s and the Company’s performance, the Compensation Committee made a final determination, in its sole discretion, as to the Individual Performance Score for each NEO. The Compensation Committee approved an Individual Performance Score of 175%, as recommended by Mr. Schulman, for each of Messrs. Rainey, Marino, and Ready and Ms. Pentland. For Mr. Schulman, the Compensation Committee approved an Individual Performance Score of 175%. 2018 AIP Payment The actual amount of an NEO’s 2018 AIP award was determined by the following formula: 2018 AIP Base Salary Target Incentive % Company Performance 75% Weight Revenue 0-200% Payout Non-GAAP Operating Margin 0-200% Payout Net New Actives +1% for every 2.5 million increase of NNAs above target = 2018 AIP Payout CAPPED AT 200% The following table shows the 2018 AIP PBRSU Payout (in shares of Company common stock) and the 2018 AIP Cash Payout (in dollars) for each NEO.
Individual Performance Measures
| NEO | Target PBRSUs (75% of Target Incentive Amount) (in Shares)x | 75% (Company Performance Score) | = | (a) 2018 AIP PBRSU Payout (in Shares)(1) | + | Target Cash (25% of Target Incentive Amount) ($)x | 25% (Individual Performance Score) | = | (b) 2018 AIP Cash Payout ($) | | Daniel H. Schulman | 18,826 | 130% | | 24,474 | | 500,000 | 175% | | 875,000 | | John D. Rainey | 7,060 | 130% | | 9,178 | | 187,500 | 175% | | 328,125 | | Gary J. Marino | 6,589 | 130% | | 8,566 | | 175,000 | 175% | | 306,250 | | Louise Pentland | 7,060 | 130% | | 9,178 | | 187,500 | 175% | | 328,125 | | William J. Ready | 7,060 | 130% | | 9,178 | | 187,500 | 175% | | 328,125 |
Individual Performance Measures
1 The PBRSUs vested on February 15, 2019 based on the Company Performance Score of 130%. Long-Term Incentive Components
Long-Term Incentive Award Type and Annual Target Value
Long-Term Incentive Award Type and Annual Target Value In making its determination on the long-term incentive (“LTI”) annual target value for 2018, the Compensation Committee set equity award guidelines and target levels of individual awards by position based on the following:
Long-Term Incentive Award Type and Annual Target Value
| • | equity compensation practices of technology companies in our compensation peer group, as disclosed in their public filings (see “Other Compensation Practices and Policies – Our Compensation Peer Group” below for our 2018 peer group) and in proprietary third-party compensation surveys (the specific identity of the respondents of which are not provided to the Compensation Committee or the Company); |
Long-Term Incentive Award Type and Annual Target Value
| • | individual performance and potential; |
Long-Term Incentive Award Type and Annual Target Value
| • | the Incentive Compensation Factors; |
Long-Term Incentive Award Type and Annual Target Value
| • | expansion of scope of role and responsibilities; and |
Long-Term Incentive Award Type and Annual Target Value
| • | the need to retain individuals in a highly competitive market for proven executive talent and based on their prospective contributions to the Company. |
Long-Term Incentive Award Type and Annual Target Value
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Long-Term Incentive Award Type and Annual Target Value
Based on these guidelines, the Compensation Committee approved the following annual target values (in dollars) for the 2018 LTI awards for each NEO:
Long-Term Incentive Award Type and Annual Target Value
| NEO | 2018 LTI Grant Value ($) | | Daniel H. Schulman(1) | 18,000,000 | | John D. Rainey(2) | 8,000,000 | | Gary J. Marino(3) | 7,000,000 | | Louise Pentland(4) | 8,000,000 | | William J. Ready | 8,000,000 |
Long-Term Incentive Award Type and Annual Target Value
1 For 2018, the Compensation Committee approved increasing Mr. Schulman’s LTI annual target value due in part to his pay relative to the competitive compensation data and his leadership of the Company and resulting Company performance. 2 Mr. Rainey’s LTI annual target value increased from 2017 due to the expansion of his role and responsibilities, which included assuming the role of leading the global customer services operations functions; the design and execution of financial plans designed to meet or exceed growth, operating margin, and cash flow targets and the resulting Company performance; and his pay relative to internal and external peers. 3 Mr. Marino’s LTI annual target value increased from 2017 due to the expansion of his role and responsibilities, which included assuming the role of leading the global sales and marketing team and a newly-created global customer segments team, with associated global responsibilities for all front-end activities for our businesses worldwide, and his pay relative to internal and external peers. 4 Ms. Pentland’s LTI annual target value increased from 2017 due to her pay relative to internal and external peers. Once the annual target values for the 2018 LTI awards were set for each NEO, the grant value was allocated equally between PBRSUs and service-based restricted stock units (“RSUs”). 2018 Annual Vesting over Three Years 50% RSUs 50% PBRSUs Three-Year Performance Period The table below shows the resulting number of shares of Company common stock subject to the 2018 LTI target PBRSUs and RSUs:
Long-Term Incentive Award Type and Annual Target Value
| NEO | 2018 Target PBRSUs(1) | 2018 RSUs(1) | | Daniel H. Schulman | 113,173 | 113,173 | | John D. Rainey | 50,300 | 50,300 | | Gary J. Marino | 44,012 | 44,012 | | Louise Pentland | 50,300 | 50,300 | | William J. Ready | 50,300 | 50,300 |
Long-Term Incentive Award Type and Annual Target Value
1 The number of RSUs and target number of PBRSUs granted were determined by dividing the value of the award by the Average Company Closing Price. The RSUs and PBRSUs were granted on March 1, 2018. The following describes the two components of our 2018 LTI program: PBRSUs and RSUs.
Performance-Based Restricted Stock Units (PBRSUs)
Performance-Based Restricted Stock Units (PBRSUs) In January 2018, the Compensation Committee approved the structure for the PBRSUs granted in 2018. To emphasize the importance of long-term, sustained strategic growth, the Compensation Committee approved a three-year performance period from January 1, 2018 through December 31, 2020, with each award to be settled for the number of shares of Company common stock earned pursuant to the award following the end of the performance period, subject to the Compensation Committee’s approval of the level of achievement against the pre-established target levels for the selected performance measures (the “2018-2020 PBRSUs”).
Performance-Based Restricted Stock Units (PBRSUs)
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Performance-Based Restricted Stock Units (PBRSUs)
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Performance-Based Restricted Stock Units (PBRSUs)
Performance Measures and Rationales The Compensation Committee approved the 2018-2020 PBRSU performance measures, which are the CAGR of FX-Neutral Revenue and Free Cash Flow over the three-year performance period from January 1, 2018 to December 31, 2020, as equally-weighted measures. The Compensation Committee believes that measuring CAGR over the three-year performance period is an appropriate performance measure as it is aligned with our long-term goal of growing our revenue and free cash flow. The following table summarizes the performance measures for the 2018-2020 PBRSUs and the Compensation Committee’s rationale for their selection:
Performance-Based Restricted Stock Units (PBRSUs)
| Measure/Weighting | Definition | Purpose | | FX-Neutral Revenue CAGR (50% weighting) | Calculated on a fixed foreign exchange basis (referred to as “FX-Neutral”). | The Compensation Committee believes that the FX-Neutral Revenue measure should be used to help ensure that our executive officers are accountable for driving profitable growth while making appropriate tradeoffs between investments that increase future revenue growth and operating expense. | | Free Cash Flow CAGR (50% weighting) | “Free Cash Flow” is defined as “Net cash provided by operating activities” less “Property and equipment, net” as reported in our Annual Report on Form 10-K for each year during the performance period. | The Compensation Committee believes that the Free Cash Flow measure should be used to reinforce the importance of the cash generation capability of the business necessary to finance its continued growth and investment requirements, while positioning us to take advantage of inorganic growth opportunities. |
Performance-Based Restricted Stock Units (PBRSUs)
PBRSU Mechanics and Targets The targets established for the three-year performance period were set at a level consistent with the medium-term outlook provided to the investment community. When the Compensation Committee set the target levels for the 2018-2020 PBRSUs, they were intended to be challenging but attainable, and to provide appropriate incentives for our executive officers to continue to grow our business. The Compensation Committee believes that achievement of maximum performance against the target levels would require sustained exceptional performance over the performance period. While the performance targets for ongoing performance periods are not disclosed for competitive reasons, performance targets and achievement levels for our first full three-year PBRSU period are disclosed below. To earn any of the shares of PayPal common stock subject to the 2018-2020 PBRSUs, at least one of the FX-Neutral Revenue CAGR or Free Cash Flow CAGR performance thresholds must be met. Each of the performance thresholds for FX-Neutral Revenue CAGR and Free Cash Flow CAGR is independent, and if either threshold is met, the award is earnable with respect to that performance measure based on the percentages shown in the table below. If the performance threshold for either FX-Neutral Revenue CAGR or Free Cash Flow CAGR is not met, there is no payment attributable to that performance measure. The following chart shows the minimum, target, and maximum vesting levels for FX-Neutral Revenue CAGR and Free Cash Flow CAGR. Linear interpolation applies to performance between threshold, target, and maximum levels, with no funding for performance below the threshold level.
Performance-Based Restricted Stock Units (PBRSUs)
| | Threshold | Target | Maximum | | FX-Neutral Revenue CAGR (50% weighting) | 50% Payout | 100% Payout | 200% Payout | | Free Cash Flow CAGR (50% weighting) | 50% Payout | 100% Payout | 200% Payout |
Performance-Based Restricted Stock Units (PBRSUs)
Settlement of Previously Awarded 2016-2018 PBRSUs In early 2016, the Compensation Committee approved the performance measures and target levels for the 2016-2018 PBRSUs, which have the same structure as the 2018-2020 PBRSUs. The 2016-2018 PBRSUs are earned based on the CAGRs of FX-Neutral Revenue and Free Cash Flow over the three-year performance period from January 1, 2016 to December 31, 2018, as equally weighted measures. To earn any of the shares of PayPal common stock subject to the 2016-2018 PBRSUs, at least one of the FX-Neutral Revenue CAGR or Free Cash Flow CAGR performance thresholds must be met. Each of the performance thresholds for FX-Neutral Revenue CAGR and Free Cash Flow CAGR is independent, and if either threshold is met, the award is earnable with respect to that performance measure.
Performance-Based Restricted Stock Units (PBRSUs)
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Performance-Based Restricted Stock Units (PBRSUs)
The following chart shows the minimum, target, and maximum vesting levels for FX-Neutral Revenue CAGR and Free Cash Flow CAGR set by the Compensation Committee at the beginning of the 2016-2018 performance period, the actual results for each measure, and the corresponding percentage of target achieved.
Performance-Based Restricted Stock Units (PBRSUs)
| Measure | Threshold | Target | Maximum | Actual(1) | Percentage of Target Achieved | | Target Payout Percentage | 50% | 100% | 200% | | | | FX-Neutral Revenue CAGR | 12% | 15% | 18% | 20% | 200% | | Free Cash Flow CAGR | 12% | 15% | 18% | 37% | 200% |
Performance-Based Restricted Stock Units (PBRSUs)
1 For the 2016-2018 PBRSUs, no adjustments were made to FX-Neutral Revenue or Free Cash Flow. The following table shows the number of shares earned and vested pursuant to the 2016-2018 PBRSUs for each NEO.
Performance-Based Restricted Stock Units (PBRSUs)
| NEO | Target PBRSUs (in Shares)x | Percentage of Target Achieved | = | Number of Shares Earned | | Daniel H. Schulman | 178,469 | 200% | | 356,938 | | John D. Rainey | 54,914 | 200% | | 109,828 | | Gary J. Marino | 41,186 | 200% | | 82,372 | | Louise Pentland | 54,914 | 200% | | 109,828 | | William J. Ready | 61,778 | 200% | | 123,556 |
Restricted Stock Units
Restricted Stock Units Our 2018 LTI awards also included service-based RSUs with a three-year annual vesting schedule, which aligns the vesting period of the RSUs with the three-year performance period of the 2018-2020 PBRSUs granted in 2018. Service-based RSUs have value regardless of whether our stock price increases or decreases and therefore help to secure and retain executive officers and provide an appropriate incentive to remain with us during the vesting period. CEO PSU Award In addition to the annual long-term incentive award, in 2018 the Compensation Committee granted a performance-based equity award to Mr. Schulman which will be earned only if meaningful and sustained stock price performance targets are achieved during a five-year performance period. This award is consistent with PayPal’s “pay for performance” philosophy to further incentivize Mr. Schulman to drive long-term stockholder value creation. The CEO PSU Award has longer vesting periods than PayPal’s annual long-term incentive awards, further emphasizing the desire to align Mr. Schulman’s interests with those of stockholders over the longer-term. The Compensation Committee considered the following factors as it contemplated Mr. Schulman’s executive compensation in early 2018:
Restricted Stock Units
| • | The instrumental role that Mr. Schulman continues to play in PayPal’s strategic transformation, including by: |
Restricted Stock Units
| • | Expanding the Company’s value proposition following its separation from eBay and becoming an independent public company in July 2015 |
Restricted Stock Units
| • | Empowering customer choice |
Restricted Stock Units
| • | Actively partnering within the ecosystem with credit card networks, financial institutions, and technology companies |
Restricted Stock Units
| • | Increasing PayPal’s addressable market |
Restricted Stock Units
| • | Transforming PayPal from a payments button to an open payments platform |
Restricted Stock Units
| • | PayPal’s strong financial and operational performance under Mr. Schulman’s leadership, including strong growth in both revenue and earnings, as well as payment volume, net new active accounts, and engagement |
Restricted Stock Units
| • | Mr. Schulman is uniquely qualified to lead PayPal given his: |
Restricted Stock Units
| • | Deep expertise in payments, mobile technology, innovation, and regulatory and cybersecurity matters |
Restricted Stock Units
| • | Leadership experience and vision in growing large, complex businesses |
Restricted Stock Units
| • | Experience transforming financial services, while driving cultural change and instilling a values-based environment that champions diversity and inclusion |
Restricted Stock Units
| • | Employee retention is one of our core business risks and competition for proven CEO talent is particularly intense. The Compensation Committee believed Mr. Schulman’s leadership would enable PayPal to continue to execute on its multi-year strategic plan and deliver sustainable, long-term growth |
Restricted Stock Units
| • | An award based on meaningful stock price targets over a five-year period was consistent with PayPal’s “pay for performance” philosophy and: |
Restricted Stock Units
| • | Complements PayPal’s existing executive compensation program |
Restricted Stock Units
| • | Further incentivizes Mr. Schulman to drive stockholder value creation over a longer time frame |
Restricted Stock Units
| • | Helps ensure that Mr. Schulman’s interests are aligned with those of long-term stockholders |
Restricted Stock Units
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Restricted Stock Units
| Compensation Discussion and Analysis | 55 |
Restricted Stock Units
| • | Aligns with the Board’s stretch share price performance goals for Mr. Schulman that were not directly addressed in the core compensation program, because the Compensation Committee believed that as the CEO and leader of PayPal’s strategic transformation, Mr. Schulman was uniquely positioned to directly affect our share price with his performance and execution of his strategic vision for PayPal |
Restricted Stock Units
| • | The importance of implementing appropriate stockholder-friendly safeguards in the design of any award outside of our standard annual long-term incentive program. |
Restricted Stock Units
PayPal has performed extremely well since becoming an independent public company in July 2015 both on an absolute basis and relative to the broader market. Around the time the CEO PSU Award was granted, PayPal’s stock price was at its highest since becoming an independent public company. In a broader market context, the Board recognized that the grant was being made during the longest bull market in history for the S&P 500 Index, and that the market environment could change, putting increased pressure on share price. Achievement of the stretch performance goals established under the CEO PSU Award will require sustaining PayPal’s strong performance over the next several years and continuing to grow and create stockholder value over the long term.
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1 1 Reflects stock price performance from July 20, 2015 (the first day of “regular way” trading as an independent public company to March 29, 2018 (the last trading day immediately prior to the grant date of April 1, 2018 for the CEO PSU Award). 2 Peer group figure presented is a market cap weighted index value; peers include companies listed on page 60.
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
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Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| | Form of Payment | Performance Period | Performance Alignment | Objectives | | CEO PSU Award | PSUs (100%) | Five years | • Awards granted when the average closing stock price for the 90 trading days prior to grant date was $77.84 • 50% earned if PayPal achieves a 90-trading day average closing stock price target of $105, approximately 38% increase over the price at grant date • 50% earned if PayPal achieves a 90-trading day average closing stock price target of $125, approximately 65% increase over the price at grant date • Backloaded vesting, with earned awards vesting on the third, fourth, and fifth anniversaries of grant date; no vesting if goals are not met • Earned shares generally required to be held until the fifth anniversary of the grant date | • Serve as a complement to PayPal’s existing executive compensation program, recognizing that compensation outside of a standard incentive program should be carefully designed with appropriate stockholder-friendly safeguards • Incentivize stockholder value creation over a longer time frame than under our standard incentive program • Closely align Mr. Schulman’s interests with those of long-term stockholders • Require more significant performance results for Mr. Schulman to earn the award • Address risks associated with a highly competitive market for proven executive talent |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
The Compensation Committee worked closely with its independent compensation consultant to design the CEO PSU Award for Mr. Schulman, which was granted in April 2018. Below is a summary of the key details and features of the CEO PSU Award:
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | The CEO PSU Award was granted with a grant date fair value of $16 million. |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | The CEO PSU Award features an extended five-year performance period: |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | 50% of the shares subject to the CEO PSU Award may be earned if PayPal achieves a stock price target of $105 based on a 90-trading day average closing price; |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | The remaining 50% of the shares subject to the award may be earned if PayPal achieves a stock price target of $125 based on a 90-trading day average closing price. |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | The CEO PSU Award features backloaded vesting. |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | If any portion of the award is earned before the third anniversary of the grant date, the earned award will vest ratably on the third, fourth, and fifth anniversaries of the grant date, subject to Mr. Schulman’s continued service through the applicable vesting date. |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | Any portion of the award earned after the third anniversary of the grant date but before the fourth anniversary of the grant date will vest one-third on the date such portion is earned, and one-third on each of the fourth and fifth anniversaries of the grant date. |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | Two-thirds of any portion of the CEO PSU Award that is earned after the fourth anniversary of the grant date will vest on the date such portion is earned, with the remaining one-third vesting on the fifth anniversary of the grant date; |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | Earned and vested shares under the CEO PSU Award are generally required to be held until the fifth anniversary of the grant date. |
Stock Price Performance from Separation (in 2015) to CEO PSU Award Grant Date1
| • | The award is subject to forfeiture if the stock price targets are not met over the performance period (see footnote 5 to the table under the “Potential Payments Upon Termination or Change in Control” below for a description of the treatment of the CEO PSU Award upon a termination of employment or change in control). |
Severance and Change in Control Provisions
Severance and Change in Control Provisions Each of the NEOs is eligible to receive payments and benefits in the event of a termination of employment, including a termination of employment in connection with a change in control of the Company (the “Executive Severance Provisions”), either through specific provisions included in individual agreements with the Company or substantially similar provisions provided under our SVP and Above Standard Severance Plan and Change in Control Severance Plan for Key Employees. Under the Executive Severance Provisions, an NEO is eligible to receive payments and benefits in the event of certain terminations of employment, including without limitation, a termination of employment by the Company without cause or by the executive for good reason. No payments or benefits are provided under the Executive Severance Provisions if there is a change in control of the Company without an accompanying qualifying termination of employment (i.e., we do not provide any “single-trigger” payments). We do not provide any of the NEOs with excise tax “gross-ups” or other similar payments. The Compensation Committee believes that these Executive Severance Provisions are essential to fulfill our objective to recruit, retain, and develop key, high-quality management talent in the competitive market because these arrangements provide reasonable protection to the executive officer in the event that he or she is not retained under specific circumstances. Further, the Executive Severance Provisions are intended to facilitate changes in the leadership team by setting terms for the termination of the employment of an NEO in advance, thus allowing a smooth transition of responsibilities when it is deemed to be in the best interest of the Company. The change in control provisions in the Executive Severance Provisions are intended to allow executives to focus their attention on our business operations in the face of the potentially disruptive impact of a proposed change-in-control transaction, to assess takeover bids objectively without regard to the potential impact on their individual job security, and to allow for a smooth transition in the event of a change in control of the Company. These factors are especially important in light of the executives’ key leadership roles. See “Potential Payments Upon Termination or Change in Control” below for a description of these arrangements and estimated payments and benefits payable under the Executive Severance Provisions. Other Compensation Practices and Policies
OUR COMPENSATION PEER GROUP
OUR COMPENSATION PEER GROUP In deciding whether a company should be included in our compensation peer group, the Compensation Committee generally considers the following screening criteria:
OUR COMPENSATION PEER GROUP
| • | revenue; |
OUR COMPENSATION PEER GROUP
| • | market capitalization; |
OUR COMPENSATION PEER GROUP
| • | historical growth rates; |
OUR COMPENSATION PEER GROUP
| • | primary line of business; |
OUR COMPENSATION PEER GROUP
| • | whether the company has a recognizable and well-regarded brand; and |
OUR COMPENSATION PEER GROUP
| • | whether we compete with the company for talent, particularly in the competitive Bay Area talent market. |
OUR COMPENSATION PEER GROUP
For each member of the peer group, one or more of the factors listed above was relevant for inclusion in the group, and similarly, one or more of these factors may not have been relevant for inclusion in the group. Some of our compensation peer group members may be significantly larger than the Company in terms of revenue or market capitalization; the Compensation Committee has determined to include such companies in the peer group primarily because the Company competes with them for talent, particularly in the competitive Bay Area talent market. Our compensation peer group is comprised of technology companies and financial companies. This is intended to provide the Compensation Committee with insight into the differences across these two sectors in which we generally compete for executive talent. Our compensation peer group for 2018 is composed of 12 technology companies, which generally reflect the companies with which we directly compete for talent, and eight financial companies, which generally reflect the companies with which we both compete for talent and more closely compare our financial performance.
OUR COMPENSATION PEER GROUP
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OUR COMPENSATION PEER GROUP
For 2018, there were no changes from our 2017 compensation peer group. PEER GROUP COMPANIES Adobe Systems Incorporated Alphabet Inc. (Google Inc.) Amazon.com, Inc. American Express Company Apple Inc. Discover Financial Services Facebook, Inc. First Data Corporation Global Payments Inc. Intuit Inc. MasterCard Incorporated Netflix, Inc. Oracle Corporation Salesforce.com, Inc. Square, Inc. Symantec Corporation The Western Union Company Twitter, Inc. Visa Inc. Worldpay, Inc. (Vantiv, Inc.) Technology Companies Financial Companies In considering our executive compensation program for 2018 and going forward, the Compensation Committee considered the compensation programs of our compensation peer group as well as our goals of rewarding performance and retaining core top talent. We compare our performance against the performance of a group of companies with relatively comparable business models. Our executive compensation program is generally designed to roughly parallel the programs of members of our compensation peer group because employees have historically been recruited by these competitors and we compete against them for talent.
CLAWBACK POLICY
| • | any incentive compensation that was paid to or received by the covered employee (including gains realized through the exercise of stock options) during the 12-month period preceding the date on which we had actual knowledge of the triggering event or the full impact of the triggering event was known (or such longer period of time as may be required by any applicable statute or government regulation). |
TAX AND ACCOUNTING CONSIDERATIONS
appropriate levels and types of executive compensation. Accordingly, the Compensation Committee will continue to take into account the tax implications, including in light of Section 162(m), as amended, when making executive compensation decisions, but expressly retains the full discretion to forgo deductibility when it believes doing so is in our and our stockholders’ best interests. We account for stock-based compensation in accordance with FASB ASC Topic 718, which requires us to recognize compensation expense for share-based payments, including stock options, restricted stock units, performance-based restricted stock units, shares of Company common stock, and other forms of equity compensation. The Compensation Committee has taken into account the impact of FASB ASC Topic 718 in determining to use a portfolio approach to our equity awards.
The Compensation Committee of the Board
| Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards(1) ($) (e) | Option Awards ($) (f) | Non-Equity Incentive Plan Compensation(2) ($) (g) | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($) (h) | All Other Compensation(3) ($) (i) | Total ($) | | Daniel H. Schulman President and Chief Executive Officer | 2018 | 1,000,000 | — | 35,275,516 | — | 875,000 | — | 614,072 | 37,764,588 | | | 2017 | 1,000,000 | — | 16,976,017 | — | 1,000,000 | — | 242,617 | 19,218,634 | | | 2016 | 1,000,000 | — | 13,453,388 | — | 3,140,000 | — | 1,340,953 | 18,934,341 | | John D. Rainey Chief Financial Officer and Executive Vice President, Global Customer Operations | 2018 | 721,154 | — | 8,463,911 | — | 328,125 | — | 11,000 | 9,524,190 | | | 2017 | 650,000 | — | 5,645,887 | — | 325,000 | — | 2,010,800 | 8,631,687 | | | 2016 | 650,000 | — | 4,139,520 | — | 979,875 | — | 4,165,313 | 9,934,708 | | Gary J. Marino(4) Former Executive Vice President, Chief Commercial Officer | 2018 | 656,731 | — | 7,438,060 | | 306,250 | — | 11,000 | 8,412,041 | | | 2017 | 550,000 | — | 6,598,408 | — | 240,625 | — | 10,800 | 7,399,833 | | Louise Pentland Executive Vice President, Chief Business Affairs and Legal Officer | 2018 | 713,942 | — | 8,463,911 | — | 328,125 | — | 11,000 | 9,516,978 | | | 2017 | 625,000 | — | 5,626,669 | — | 312,500 | — | 10,800 | 6,574,969 | | | 2016 | 620,846 | — | 4,139,520 | — | 935,926 | — | 41,232 | 5,737,524 | | William J. Ready Executive Vice President, Chief Operating Officer | 2018 | 721,154 | — | 8,463,911 | — | 328,125 | — | 11,000 | 9,524,190 | | | 2017 | 650,000 | — | 25,202,553 | — | 325,000 | — | 10,800 | 26,188,353 | | | 2016 | 580,000 | — | 4,656,955 | — | 910,600 | — | 10,600 | 6,158,155 |
DEATH OR DISABILITY – COLUMN (d)
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